How inclusive are India’s top 100 listed companies?

Civil Society News, New Delhi

The top 100 listed companies in India could do better by way of inclusion, according to an index of socially responsible policies in the corporate sector. Overall, the picture that emerges from the index is of a continuing distance between the interests of managements and shareholders on the one hand and communities and workers on the other.

Companies seem to conflate corporate social responsibility (CSR) with inclusion when it is the latter which should be integral to their business processes so that they can spread the benefits of economic growth.

The India Responsible Business Index (IRBI) is in its third year and is the result of a collaborative effort by Corporate Responsibility Watch, Oxfam India, Change Alliance, Praxis Institute for Participatory Practices and Partners in Change.

The index is based on data drawn from public disclosures made by 100 companies, beginning with Business Responsibility Reporting (BRR), which is meant to reflect compliance with the National Voluntary Guidelines (NVG) framed in 2011 by the Ministry of Corporate Affairs on the social, environmental and economic responsibilities of businesses.

The NVG have nine principles of social inclusion. The IRBI measures five of them: non-discrimination in the workplace, respecting employee dignity and human rights, community development, inclusiveness in the supply chain and community as stakeholders.

BRR was made mandatory by the Securities and Exchange Board of India (SEBI) for the top 100 and now 500 companies based on market capitalisation. Additionally, companies are required to spend two percent of profits on corporate social responsibility (CSR).

The IRBI captures what companies are telling society about themselves. Apart from BRR, research has been done into annual reports, websites and policy pronouncements. An effort has also been made to elicit responses from managements.

In addition to the top 100 companies this year the researchers have also looked at the data of a subset of 23 companies, which are no longer in the top 100, for the sake of making comparisons over three years. Also, two of the 100 companies, Vedanta and Cairn, merged — technically making the number 99.

The purpose of the index is not to condemn or shame companies but instead to help them see themselves as the agents of change and development they can be.

The private sector’s success is important for economic growth. But in an economy where disparities are stark and complex and slow to narrow, it is important to be formally committed to spreading prosperity.

To remain socially relevant, companies need their managements to be inclusive in their thinking and processes. It was to this end that the NVG were framed.

While BRR and the two-percent rule are mandatory, it is the NVG that embody the spirit of inclusivity. The index seeks to put the focus on voluntary guidelines so that managements go beyond what is mandatory and are encouraged to be innovative in their quest to be accountable not just to shareholders but to society at large.

Public disclosures serve the purpose of building confidence in the private sector’s commitment to equity and nation-building. It is important for companies to be regarded as being connected to social realities and not driven by profits alone.

The need to make disclosures has prompted companies to think afresh about their policies and practices, be it on discrimination in the workplace or connecting with communities or curbing pollution.

“Business and human rights is now the buzzword in companies,” says Dheeraj, senior programme officer at Praxis and one of the lead researchers, citing an example. “In some company reports you will find human rights mentioned upfront which is a big change. Three years ago, we never saw any such mention.”

However, it is clear much remains to be done. Tom Thomas, convener of Corporate Responsibility Watch (CRW), writes in the preface to the index: “After three years of IRBI analysis, we see very little perceptible change. Banks are still not reporting on supply chain and community as a stakeholder is still not in the DNA of companies. It is also disappointing to note that high disclosure is only in areas that are legally mandated, defeating the very purpose of voluntary disclosure. Unfortunately, there is seemingly little effort from businesses, the ministry, SEBI or the government to make a difference.”

1. Non-discrimination in the workplace

Companies are expected to have a policy on non-discrimination in place. A policy enables a company to recruit people who have faced discrimination. The index finds out if companies use the terms non-discrimination and equal opportunities while hiring and promoting employees and if board members too are selected on this basis. The index also assesses if companies have systems to ensure that there is non-discrimination and diversity in the workplace.

More than 50 companies reported that they had identified women, Scheduled Castes (SC), persons with disabilities and religious minorities as vulnerable groups. Ninety-six companies disclosed the number of women in their workforce. But only 18 companies mentioned Scheduled Tribes. Thirty-two companies mentioned sexual minorities. 

 “When we started, we didn’t think that companies would write openly about caste-related dimensions as part of their policy,” says Dheeraj. “After all, affirmative action is not mandated. Three companies have started disclosing. Tata Steel is clearly making public the SC/ST percentage in its workforce. Also, Bajaj Finance and Godrej are disclosing the number of SC/ST people they hire.”

More companies now have anti-sexual harassment policies in place and disclose whether cases were filed and action taken. “One reason is that this law is mandatory,” says Anusha, programme manager, communications, with Praxis. Only four companies didn’t have systems in place. 

But the Rights of Persons with Disabilities Act doesn’t seem to have made a dent on recruitment. Only 19 companies had a policy to hire people with disabilities. And 24 companies didn’t disclose their commitment to non-discrimination in their recruitment process.

2. Employee dignity and human rights

The index looks at company policies on freedom of association, wages, worker rights, workplaces and labour issues, including child labour and safety training.

There hasn’t been much change since the last report. While majority of the companies — 68 and 52 respectively — recognise association of employees and collective bargaining only 16 companies disclose systems and mechanisms that show commitment to it. They kept very few records of how many people were part of those unions. None extended the right of association to contract workers or temporary employees.

In fact, contract workers don’t seem to figure in most company’s calculations. Bigger companies in the mining, power, oil and gas sectors did not even report the number of contract workers they hired.

Only six companies, including Bajaj Auto, HDFC Finance and BPCL, said they extend social benefits to contract workers. Bajaj Auto has a Charter of Fair and Responsible Workplace Guidelines for Contract Labour. HDFC ensures minimum wages and social security benefits to its contract employees.

Only 24 companies — six less than in the 2016 report — explicitly stated their commitment to ensuring minimum wages. Six companies stated they were committed to providing fair living wages.

“We first see  if they recognise fair living wages as something they want to incorporate in their wage calculation system and what are the criteria they are using. Hindustan Unilever is disclosing this in a detailed way. They incorporate cost of health, education and housing into their wage structure,” explain Dheeraj and Anusha. Emami too claimed it provided fair living wages.

While 91 companies reported that they were committed to health and worker safety, 40 companies still need to disclose systems to assess this. Most companies have knowledge systems to prevent child labour but systems to assess worker rights and labour issues were abysmal with 90 companies not disclosing systems for assessing both.

“That is the scene with permanent workers. With contractual labour it is worse,” says Dheeraj. “Labour as a constituency has weakened.” Neither employment policies nor social benefits are extended to them. The report recommends a law on contract labour.

3. Community development

The NVG recognise the positive role companies can play in improving the lives of marginalised communities.

The index assesses CSR policies and strategies of companies, and whether these are shaped in partnership with communities and reflect their needs. On the whole, companies do well.  Companies identifying marginalised groups for projects rose from 81in 2016 to 86 in 2017.

“In community development, companies are willing to commit more and have more robust policies in place. They are very open to disclosing activities they are doing and the sectors they are working on. In this area, they have been consistently scoring well. But their assessment systems, both needs assessment and impact assessment are still weak,” explains Dheeraj. Eighty-four companies failed to assess the needs and aspirations of the community before planning their CSR projects.

Companies are still mostly unwilling to work in backward, remote areas. Eighty-one companies didn’t disclose identification of backward regions as an important aspect for CSR projects. “Only 16 companies have this as part of their policy. CSR expenditure is largely concentrated in industrialised states. So, Gujarat and Tamil Nadu will have more expenditure. But in terms of actual practice we have not gone into that,” said Dheeraj.

4. Inclusivity in supply chain

Companies have a responsibility to ensure that their supply chains comply with the NVG. After all, nearly 92 percent of workers are employed in the informal sector, to which most companies outsource work.

Fifty-seven companies, seven more than the last report, recognised the importance of giving priority to local suppliers but only 15 have systems to do this, three less than last year.

A big concern is that 34 companies have not disclosed whether they extend their child labour policy to their supplier chain. Likewise, only 49 companies, down from 54 in 2016, extended their human rights policy to the supply chain. Also, just 22 companies, instead of 24 in 2016, extended their employment policies to the supply chain.

Only four companies disclosed assessing issues relating to workers' rights in the supply chain. Just six companies have systems to assess the capacity needs of local suppliers, vendors and other stakeholders.

Banks say they don’t have a supply chain. They think supply chain only refers to manufacturing units. “In supply chain we do have some positive movements because of UK’s Modern Slavery Act,” says Dheeraj. “Around 26 companies who operate in the UK have put their Modern Slavery Statement mostly on their UK websites, affirming that they are committed to upholding human rights principles across the supply chain and that they will have assessment systems in place. That is influencing Indian operations. Although right now we don’t see direct attribution to Indian supply chains, that debate has started.”

5. Community as business stakeholders

With large tracts of land being acquired for infrastructure and other industrial projects, it is important to assess whether companies have policies to include communities as stakeholders in their projects, whether they respect the principle of prior informed consent, resettle and rehabilitate project-affected people, provide local employment and judiciously use natural resources.

Companies are doing badly on this score and there hasn’t been much improvement over the past three years.

Fifty-four companies recognised the need for impact assessments but only nine mentioned public hearings or informing communities about project impacts. Only three companies — Godrej, HUL, Vedanta — recognised the principle of free, prior informed consent.

More than 95 companies do not recognise their responsibility to provide better or similar living conditions and services to project-affected people and prior commitment through discussions for land acquisition and displacement.

Seventy companies, eight more than 2016, acknowledge judicious use of local resources and 44 provided systems to do this.

Companies also don’t recognise and create knowledge systems that promote sensitivity to local concerns, culture or environment. Less than 15 percent of companies disclosed commitment to local culture. 

Analysis

Companies across sectors scored well in community development and non- discrimination in the workplace.  While companies don't generally fare well in relation to supply chain, the FMCG sector performed well. In respecting employee dignity and human rights, finance, IT, telecom, media and publishing scored the least. The finance sector and the metals and mining sector score the least in supply chain. The pharma sector lags in non-discrimination in employment.

“FMCG does well in supply chain. Again, it’s a comfort zone. You talk about procurement, retail and so on. Finance is an area to be looked at with more scrutiny because they fund industrial and infrastructure projects,” says Dheeraj.

“If they don’t have due diligence systems in place they can’t push other companies to act on community as stakeholder. Finance companies would have the most influence, more than other stakeholders. In supply chain, they are the weakest in community as stakeholder. They should start acting in this area.”

Also, as in previous years PSUs disclosed more commitment to the five elements of the IRBI. The private sector did marginally better in community development and supply chain outreach. 

Getting to companies

It hasn’t been easy for researchers to get the information they want from companies or interact with them. 

They first peruse information that the company has placed in the public domain — annual reports, BRR and policy documents on company websites. This data, along with a list of 115 queries, is sent to the company for validation. The company can also add to the data.   

“It’s a mixed response. There were occasions when we were asked what authority we had to assess the companies. There are four companies who gave detailed responses to each question — Axis Bank,  Bharat Electronics, Godrej and Mahindra & Mahindra,” says Dheeraj.

For the past two reports, 30 percent of the companies responded. “Around 3 to 5 percent gave detailed responses. The general opinion is that this is a pretty good response rate. For the first report, we had a detailed interaction with Vedanta and Cairn. This time 10 to 15 companies assured us they would send data but they didn’t,” says Dheeraj.

Companies acknowledge data on the phone but resist answering on email because they don’t want to formalise the interaction.

Mostly it is sustainability heads in companies whom researchers reach out to. This isn’t easy because sustainability heads think the IRBI is about CSR alone.

“But we are talking about core business. In the Indian narrative, CSR has become only about the 2 percent spend. We often need to explain ourselves,” says Dheeraj.

Also, reporting systems are sometimes outsourced by companies to certification agencies and all of them give assurances for sustainability reports.

“Many sustainability heads haven’t looked at their own BRRs so their own interaction with their systems is weak. Even within companies there are gaps in how they are integrating their reporting with their own systems,” says Dheeraj.

It is possible that there are companies which have good systems and practices but don’t do a good job of documenting them and placing them in the public domain. There could also be companies which have robust policies which are well articulated but poorly implemented.

CRW is a network of 14 organisations and independent consultants who track corporate behaviour. The IRBI serves the important purpose of keeping the narrative on responsible business alive from one year to the next. Voluntary disclosure works best when there is regulatory oversight. It is also necessary to have civil society scrutiny so that companies get feedback and feel the need to do better.